Kellogg (K) Q2 2010 Earnings Call July 29, 2010 9:30 am ET Executives Kathryn Koessel - John Bryant - Chief Operating Officer and Executive Vice President Ronald Dissinger - Chief Financial Officer and Senior Vice President A. D. MacKay - Chief Executive Officer, President, Director and Member of Executive Committee Analysts Alexia Howard - Bernstein Research Judy Hong - Goldman Sachs Group Inc. Vincent Andrews - Morgan Stanley Jonathan Feeney - Janney Montgomery Scott LLC Christopher Growe - Stifel, Nicolaus & Co., Inc. Terry Bivens - JP Morgan Chase & Co Eric Katzman - Deutsche Bank AG Robert Moskow - Crédit Suisse AG David Driscoll - Citigroup Inc David Palmer - UBS Investment Bank PresentationA. D. MacKay
Thanks, Kathryn, and good morning, everyone. Our second quarter results were modeled and expected, reflecting weakness in the Cereal category, combined with the impact of our voluntary cereal recall at the end of June and softness in that area of business. The weakness in the Cereal category have the greatest bearing on our Q2 results. Throughout the first half of the year, we talked about the challenging Cereal category and deflation. Our results and those of other cereal manufacturers reflected this trend. Although we anticipated a difficult quarter, the severity of the impact to our business was greater than we expected. Our low cereal sales resulted from difficult year-on-year comparables, the cereal recall and inventory reductions. John will talk about these in greater detail. We continue to feel confident in the Cereal category and believe trends will begin to improve in the back half of the year. Let me talk briefly about the voluntary cereal recall, which was due to an item that came from the line up. While we had relatively few complaints at the time of the recall, we knew that removing the production store shelves was the right thing to do for our consumers. The cost was high, the total anticipated EPS impact for the year including lost sales is approximately $0.12. And we're currently pursuing all legal recourse to recoup the cost.